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IMF managing director forecasts growth 'slowdown' in the next year

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IMF managing director forecasts growth 'slowdown' in the next year
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How to steer the global economy through what looks to be a gathering storm? That's the big question for the new Managing Director of the International Monetary Fund, Kristalina Georgieva.

In a conversation with Euronews' Business Editor Sasha Vakulina on the latest episode of The Global Conversation, Georgieva said that the IMF's forecast for this year and next shows a growth "slowdown" that is already having an impact in many parts of the world.

"In two years’ time, the world has moved from synchronized upswing – in other words, accelerating growth – to a synchronized slowdown", she said.

Trade tensions, she said, are impacting growth: "The incremental increase of tariffs announced or already implemented putting a dent on growth everywhere." She added: "We may see spillover in consumption."

In a situation of global uncertainty, stemming from Brexit and various other geopolitical tensions, the attitude of many investors is ‘Wait and see’, Georgieva said.

So what can European countries do in this situation? Georgieva suggests structural reforms. "Reforming labour markets, investing in skills for tomorrow, in the human capital, can and must be a focus for policymakers so Europe can gain more competitiveness for the future," she said.

A Bulgarian national, Georgieva is the first person from the emerging-market economy to head the IMF. She says her goal is to strengthen the Fund but she’s taking charge at a precarious time — when trade tensions are growing and the global economy is slowing down.

Read the full Q&A:

Euronews: First of all, how significant is this slowdown?

Kristalina Georgieva: What we recognize it that in two years’ time, the world has moved from synchronized upswing – in other words, accelerating growth – to a synchronized slowdown, decelerating growth. And our forecast both for this year and for next year demonstrates that this slowdown is already impacting the vast majority of the world. It is important to recognize that we are still growing, but not with the speed that is necessary to meet the aspirations of people.

And when we look at the reasons, why this slowdown, we ought to recognize that trade tensions are having impact. In fact, the staff of the IMF has calculated the aggregate impact of trade tensions and came with a rather significant number: by 2020, the world would be 0.8% of GDP smaller. In other words, $700 billion dollars would be lost because of the combined impact of tariffs as well as loss of confidence. That is actually more significant than even the tariffs themselves in terms of holding global growth down.

Euronews: How do the current tensions between the US and China impact Europe? What is your assessment of the current tensions between the US and the EU?

Kristalina Georgieva: What we are seeing is that there is this incremental increase of tariffs announced or already implemented and that is putting a dent on growth everywhere. And at the same time, we are mostly concerned that not only tariffs announced or implemented are bad for growth, but the overall environment of uncertainty - to which, we ought to admit, we have to add uncertainty coming from Brexit, uncertainty coming from geopolitical tensions in many parts of the world – that in this environment of uncertainty, the attitude of many investors is ‘Wait and see’.

So far, the slowdown has been more noticeable in manufacturing activities but it is very possible that if uncertainty continues to dominate – and again, I want to stress that this is not just trade that is causing uncertainty – we may see spillover in consumption. Therefore we are raising a flag saying ‘Wait a minute, we have to think about reaching a better place for the sustainability of growth’.

Trade is good for growth, it is good for jobs, and, very importantly, it is good for poverty reduction. One fact that we don’t talk much about is that the people that are most dramatically impacted are the low-income households, because it is goods they buy that get to be more expensive in the absence of the free flowing trade in the world.

Euronews: Ms Georgieva, What are the main challenges and threats when it comes to Europe?

Kristalina Georgieva: What we see in Europe is pretty much what we see in other advanced economies. It is slowing growth, inflation below target and, at the same time, the tool of monetary policy being already quite extensively used. In this environment, when there isn’t that much more space for accommodative policies - although there is some and it is being used - we are calling on countries to concentrate more on other tools they have to inject more emphasis on growth.

On the fiscal side, some of the economies in Europe do have more fiscal space — and I think of Germany, the Netherlands. They can prepare to deploy it or — as it is the case of the Netherlands – already take steps to deploy it.

The most difficult and yet the most desirable area for reform is in the structural area. Automation, very fast advancement of digital technologies, artificial intelligence – they are all placing new demands on countries. And therefore, reforming labour markets, investing in skills for tomorrow, in the human capital, can and must be a focus for policymakers so Europe can gain more competitiveness for the future.

Euronews: Apart from trade tensions, protectionism, Brexit in Europe, etc. What are those threats we should be paying more attention to? What is the next ticking bomb?

Kristalina Georgieva: If I have to single out what we should pay attention to, it is the risks of changing climate. We have seen how economies can be dramatically impacted by force of nature and we have to brace for more of those shocks to occur. In addition to that, we are more vulnerable to terrorism.

We have to be more prepared for sudden shifts and shocks, to build more agile, more adaptable economies. And also to invest in resilience for the future.

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